<PAGE> 1
VANGUARD
MONEY MARKET
FUNDS
VANGUARD PRIME MONEY MARKET FUND
VANGUARD FEDERAL MONEY MARKET FUND
VANGUARD TREASURY MONEY MARKET FUND
[PHOTO]
SEMIANNUAL
REPORT
MAY 31, 1999
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 9,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
Our report cover pays homage to three anniversaries, each of great significance
to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto--"Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, 1998, of Walter L. Morgan, founder of
Wellington Fund, the oldest member of what became The Vanguard Group. Mr.
Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped to
shape the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with clients;
and a focus on long-term investing. To our great regret, Mr. Morgan died on
September 2, 1998.
- - The 70th anniversary, on December 28, 1998, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
3
REPORT FROM
THE ADVISER
5
PERFORMANCE SUMMARIES
7
FUND PROFILES
11
FINANCIAL STATEMENTS
13
FOR AN UPDATE ON OUR YEAR 2000
PREPAREDNESS, SEE PAGE 31.
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Short-term interest rates rose modestly during the six months ended May 31,
1999, the first half of the fiscal year for the Vanguard Money Market Funds. The
Prime Money Market Fund earned a total return of +2.4%--all from interest
income--during the period, bringing its return over the past twelve months to
+5.1%. Considering the 1.3% rise in consumer prices for the six-month period
(2.1% for the past year), our real, or inflation-adjusted, total return was
+1.1% for the six months (+3.0% for the year).
The adjacent table presents the total returns for our funds and for their
peers for the half-year and for the past twelve months. We also present their
annualized yields as of May 31. During the past six and twelve months, each fund
provided what we call the "Vanguard advantage," an edge over its average
competitor that results principally from our much lower operating costs. Our
cost advantage over the past year amounted to roughly 0.50 percentage point for
Prime Money Market Fund shareholders, a bit more than 0.33 percentage point for
Federal and Treasury Money Market Fund investors, and 0.25 percentage point for
owners of Prime Institutional Shares. The share price of each fund held steady
at $1 throughout the period, as is expected but not guaranteed.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1999
-------------------------------------------------
TWELVE MONTHS SIX MONTHS
---------------------- ----------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING
MONEY MARKET FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime +5.1% +4.6% +2.4% +2.1%
(SEC 7-Day Annualized
Yield: 4.62%)
Federal +5.0 +4.6 +2.4 +2.1
(SEC 7-Day Annualized
Yield: 4.60%)
Treasury +4.7 +4.4 +2.2 +2.0
(SEC 7-Day Annualized
Yield: 4.28%)
- ----------------------------------------------------------------------------------
Prime Institutional Shares* +5.3% +5.0% +2.5% +2.4%
(SEC 7-Day Annualized
Yield: 4.80%)
- ----------------------------------------------------------------------------------
</TABLE>
*Minimum initial investment is $10 million.
THE PERIOD IN REVIEW
The continued strong expansion of the U.S. economy helped boost stock prices
during the six months ended May 31 but also resulted in higher interest rates
and lower bond prices. Led by a surge in consumer spending that was fueled by
high employment and rising incomes, the economy grew at an annualized rate of
6.0% during the fourth quarter of 1998 and at a 4.3% rate during the first
quarter of 1999. The overall U.S. stock market, as measured by the Wilshire 5000
Equity Index, gained +13.2% during our fiscal half-year. Large-capitalization
stocks, long the market's leader, continued to shine (the Standard & Poor's 500
Composite Stock Price Index gained +12.6%), while small- and mid-cap stocks
performed even better; the Wilshire 4500 Equity Index, which tracks all
regularly traded U.S. stocks outside of the S&P 500 Index, earned +15.9%.
1
<PAGE> 4
Bond prices declined during the six months in response to concern that
the economy's strength would trigger higher inflation. Inflation is the
bondholder's bane because it erodes the purchasing power of future interest and
principal payments. The yield of the benchmark 30-year U.S. Treasury bond rose
significantly, from 5.06% at the beginning of the fiscal year to 5.83% as of May
31. The Lehman Brothers Aggregate Bond Index, which has an intermediate-term
average maturity and is a good measure of the overall taxable bond market,
returned -0.8% for the half-year, as a -3.8% price decline offset interest
income of +3.0%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
ANNUALIZED 7-DAY YIELD
-----------------------------
MAY 31, NOV. 30, MAY 31,
MONEY MARKET FUND 1999 1998 1998
- ---------------------------------------------------------
<S> <C> <C> <C>
Prime 4.62% 4.98% 5.31%
Federal 4.60 4.91 5.24
Treasury 4.28 4.47 4.95
- ---------------------------------------------------------
Prime Institutional Shares 4.80% 5.16% 5.49%
- ---------------------------------------------------------
</TABLE>
The annualized 7-day yields of our funds were lower (by 19 to 36 basis
points) on May 31 than at the end of the last fiscal year on November 30. This
downward shift reflects the fact that money market funds respond to changes in
market interest rates with a lag, as the proceeds from maturing investments are
reinvested in new holdings. After touching a high of 4.69% on March 1, the
3-month Treasury bill's yield--a good proxy for short-term interest
rates--struck its low of 4.27% on April 13. As interest rates move higher, the
yield of our funds will trend upward--again, with a modest delay.
IN SUMMARY
Money market funds play a vital role in the portfolio of the sensible investor.
These stalwarts of the short-term end of the investing spectrum offer safety,
liquidity, and current income. This makes them a suitable investment for
short-term goals or for mitigating the risks of stock funds and bond funds in a
long-term portfolio.
As always, we encourage you to thoughtfully craft a balanced investment
plan--consistent with your personal goals, time horizon, and tolerance for
risk--and then stick with it. We assure you that we will "stay the course" by
continuing to focus on providing high-quality, low-cost money market funds.
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 14, 1999
2
<PAGE> 5
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 1999
[PHOTO]
Sentiment shifted on the world's financial markets during the six months ended
May 31, 1999. The period began amid lingering anxiety over the state of the
world economy. Japan was in recession, economic growth was only sluggish in
Europe, and many developing nations were crisis-ridden. The United States was
just about the sole bright spot.
However, as the period progressed and reports showed rapid growth in U.S.
business activity, there was an evident reduction in anxiety. Midway through the
period, leadership in the U.S. stock market shifted away from a relatively
narrow group of large growth stocks regarded as relatively recession-proof and
toward cyclical stocks that had been depressed by fears of recession and by
falling demand from overseas markets. As confidence in global economic growth
grew, interest rates rose and bond prices declined in the United States due to
expectations that the Federal Reserve Board would raise interest rates to ward
off a potential surge in inflation. Internationally, however, a growing
conviction that the worst was over led to solid gains for stock markets in Japan
and several emerging markets.
U.S. STOCK MARKETS
Stock prices climbed during the half-year, reflecting the healthy domestic
economy and investors' confidence in future growth of corporate profits. The
overall market, as measured by the Wilshire 5000 Index, rose 13.2% during the
period, while the S&P 500 Index, a barometer for large-capitalization stocks,
gained 12.6%.
During the early part of the semiannual period, stock investors favored
large-cap growth stocks--a group perceived as less subject to harm during an
economic downturn. In the United States, the Federal Reserve had already cut
short-term rates by a total of 0.75 percentage point in the autumn. Foreign
central banks continued cutting rates into the new year to combat sluggish
economic conditions in Europe, Asia, and Latin America. Late in the semiannual
period, U.S. investors were rewarded for their earlier optimism with a series of
surprisingly strong gains in corporate earnings--a record percentage of
companies in the S&P 500 reported earnings that beat analysts' estimates.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1999
----------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 12.6% 21.0% 25.9%
Russell 2000 Index 11.0 -2.7 13.6
Wilshire 5000 Index 13.2 17.7 23.8
MSCI EAFE Index 4.2 4.7 8.0
- -----------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -0.8% 4.4% 7.8%
Lehman 10 Year Municipal Bond Index 0.4 4.6 7.2
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.2 4.8 5.2
- -----------------------------------------------------------------------------
OTHER
Consumer Price Index 1.3% 2.1% 2.4%
- -----------------------------------------------------------------------------
</TABLE>
*Annualized.
3
<PAGE> 6
Throughout the period, U.S. consumers provided support for the global
economy: Spending by consumers continued to set records, and American households
on average spent nearly every dollar of income they earned. The upbeat mood
stemmed from a bright employment picture (unemployment hovered near 30-year
lows) and rising incomes.
Improved prospects for global economic growth propelled several formerly
lackluster areas of the stock market, particularly commodity-related companies
and "cyclical" companies such as machinery, chemical, and paper manufacturers.
Higher oil prices, boosted by firmer demand and by agreement among oil-producing
nations to limit production, revived the "other energy" and integrated-oils
sectors, which gained about 36% and 16%, respectively. Technology stocks, up 26%
for the six months, were the market's leaders, but most of the sector's gains
came during the first three months of the period. Consumer-staples companies,
beset by tough price competition and hurt by the stronger U.S. dollar in Europe,
were the worst-performing group in the half-year, down about 7%.
U.S. BOND MARKETS
For bond investors, the powerful economic expansion evident during the half-year
was too much of a good thing. Although the inflation rate did not get out of
hand--consumer prices rose 1.3% during the six months and were up 2.1% for the
twelve months ended May 31--investors were worried that low unemployment (4.2%
of the labor force in May) would trigger an acceleration in wages and push up
prices.
Yields on U.S. Treasury bonds, which had fallen during the summer and
early fall of 1998 as investors flocked to what they regarded as a haven from
instability in other markets, rose by three-quarters of a percentage point or
more. The yield of the 30-year Treasury bond rose 77 basis points, to 5.83% on
May 31 from 5.06% on November 30, 1998. The yield of the 10-year Treasury rose
91 basis points, to 5.62% from 4.71%. Short-term rates didn't rise as far:
Yields on 3-month T-bills were up on balance by only 15 basis points, to 4.63%
on May 31. Bond prices, which move in the opposite direction from interest
rates, fell. The Lehman Aggregate Bond Index, a benchmark for investment-grade
taxable bonds, declined 0.8% on a total-return basis, as bond prices declined an
average of 3.8%, outweighing the 3.0% in interest income for the period.
Municipal bonds suffered only modest price declines and outperformed
Treasury securities during the period--a switch from the previous six months,
when Treasuries were the strongest segment of the bond market.
INTERNATIONAL STOCK MARKETS
Most overseas stock markets generated positive returns during the six months,
despite lingering economic weakness in Asia and sluggish growth in most of
Europe's developed economies. However, the strong rise in the value of the U.S.
dollar against European currencies negated most of the advances in that region
for U.S. investors. Emerging markets generally rebounded strongly, having
suffered steep losses in 1997 and 1998.
Overall, the developed markets outside the United States gained 4.2% in
U.S.-dollar terms, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The biggest increases were in the
Pacific region and in emerging markets, where investors saw hopeful signs of
economic recovery. The MSCI Pacific Index rose 14.2% in U.S.-dollar terms,
despite a continuing recession in Japan. The MSCI Select Emerging Markets Free
Index climbed 19.0%. European stocks were up a scant 0.3% in dollar terms, as
gains of about 8% in local currencies were diminished by the dollar's rise
against the euro--a common currency adopted by 11 nations--and other regional
currencies.
4
<PAGE> 7
REPORT FROM THE ADVISER
[PHOTO]
During the six months ended May 31, 1999, the first half of the fiscal year for
the Vanguard Money Market Funds, yields and returns for the Prime, Federal, and
Treasury Money Market Funds varied fractionally. Annualized 7-day yields for the
three funds now range roughly from 4.25% to 4.80%, with Prime and Federal at the
high end and Treasury at the low.
The Federal Reserve Board had cut short-term interest rates by a total of
0.75 percentage point just before the opening of the funds' fiscal year, and the
reinvestment of maturing holdings at lower market rates has caused the funds'
yields to gradually adjust downward. After a wild ride for much of 1998, the
capital markets have been breathing a collective sigh of relief, reigniting
stock markets around the globe and causing U.S. interest rates to rise. If this
trend continues, money market fund returns should retrace some of their recent
descent.
The past six months saw an unwinding of the recession fears fostered by
last year's global market turmoil. Contrary to the expectations of many, the
U.S. economy was relatively untouched by the global financial crisis of 1998.
After a minor setback due to uncertainty at the peak of the turmoil, U.S.
consumers have vigorously resumed their spending habits. Activity in the housing
and auto sectors--catalysts for the entire economy--has been especially robust.
Job growth has continued at a rate well in excess of the growth rate for the
working-age population, taking unemployment to a rate of 4.2% of the workforce,
a level not seen in decades. In response to the economy's stellar performance,
bond market participants began to factor in the possibility that the Fed would
reverse its autumn 1998 easing of monetary policy, a stance it took in reaction
to the financial crisis. Consequently, interest rates have moved higher,
especially for intermediate-term bonds and to a lesser extent in the money
markets. In May, the Fed officially adopted a bias toward tighter monetary
policy, citing concerns about "the potential for a buildup of inflationary
imbalances that could undermine the favorable performance of the economy."
We maintain our long-standing commitment to high credit quality in the
Prime Money Market Fund. While the global financial system came through last
year's trials in good shape, that experience reinforced our belief that the
small slivers of added yield to be had by reaching down the credit-quality scale
in money markets are not worth the added risk.
In anticipation of the Fed's easing of monetary policy last year, we had
extended the average maturities of our three funds. This stance bolstered their
returns because they were able to hold on to higher-yielding securities a bit
longer than competitors with shorter maturities. Given the changes in the market
outlined above and our expectation that Fed tightening will cause short-term
rates to rise further in the relatively near future, we are changing course by
shortening the funds' maturities. This step will make their yields more
responsive to changes in market rates.
5
<PAGE> 8
While we as fund managers toil to manage risk and to provide competitive
returns, we have a very able ally--Vanguard's expense advantage. The lower
operating expenses of the Vanguard Money Market Funds versus those of their
average peers are a constant, ensuring excellent performance for our
shareholders.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group
June 10, 1999
INVESTMENT PHILOSOPHY
The funds reflect a belief that the highest level of current income consistent
with capital preservation and liquidity can be provided by holding high-quality
money market instruments issued by financial institutions, nonfinancial
corporations, the U.S. government, and federal agencies.
6
<PAGE> 9
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1978-MAY 31, 1999
- ---------------------------------------------------------
PRIME MONEY MARKET FUND AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1979 0.0% 10.8% 10.8% 10.5%
1980 0.0 12.8 12.8 12.5
1981 0.0 17.6 17.6 17.5
1982 0.0 13.1 13.1 12.8
1983 0.0 8.9 8.9 8.6
1984 0.0 10.6 10.6 10.1
1985 0.0 8.2 8.2 7.9
1986 0.0 6.8 6.8 6.4
1987 0.0 6.5 6.5 6.0
1988 0.0 7.5 7.5 6.9
1989 0.0 9.4 9.4 8.8
1990 0.0 8.3 8.3 7.8
1991 0.0 6.4 6.4 5.9
1992 0.0 3.9 3.9 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.9 3.9 3.5
1995 0.0 5.8 5.8 5.4
1996 0.0 5.3 5.3 4.8
1997 0.0 5.4 5.4 4.9
1998 0.0 5.4 5.4 4.9
1999** 0.0 2.4 2.4 2.1
- ---------------------------------------------------------
</TABLE>
*Average Money Market Fund.
**Six months ended May 31, 1999.
See Financial Highlights table on page 27 for dividend information for the past
five years.
SEC 7-Day Annualized Yield (5/31/1999): 4.62%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- ----------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund 6/4/1975 5.23% 5.29% 0.00% 5.53% 5.53%
- ----------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
7
<PAGE> 10
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND INSTITUTIONAL SHARES
TOTAL INVESTMENT RETURNS: OCTOBER 3, 1989-MAY 31, 1999
- --------------------------------------------------------
PRIME MONEY MARKET FUND AVERAGE
INSTITUTIONAL SHARES FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN* RETURN
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1989 0.0% 1.4% 1.4% 1.4%
1990 0.0 8.5 8.5 8.3
1991 0.0 6.5 6.5 6.2
1992 0.0 4.0 4.0 3.8
1993 0.0 3.2 3.2 2.9
1994 0.0 4.1 4.1 3.8
1995 0.0 6.0 6.0 5.7
1996 0.0 5.5 5.5 5.2
1997 0.0 5.6 5.6 5.3
1998 0.0 5.6 5.6 5.3
1999+ 0.0 2.5 2.5 2.4
- --------------------------------------------------------
</TABLE>
*Prior to 10/28/1995, total returns are for Vanguard Institutional Money Market
Portfolio.
**Average Institutional Money Market Fund.
+Six months ended May 31, 1999.
See Financial Highlights table on page 27 for dividend information.
SEC 7-Day Annualized Yield (5/31/1999): 4.80%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- -------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund
Institutional Shares** 10/3/1989 5.41% 5.47% 0.00% 5.48% 5.48%
- -------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Prior to 10/28/1995, total returns are for Vanguard Institutional Money Market
Portfolio.
8
<PAGE> 11
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
FEDERAL MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: JULY 13, 1981-May 31, 1999
- --------------------------------------------------------
FEDERAL MONEY MARKET FUND AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1981 0.0% 5.9% 5.9% 5.7%
1982 0.0 11.9 11.9 11.7
1983 0.0 8.5 8.5 8.3
1984 0.0 10.2 10.2 9.8
1985 0.0 8.0 8.0 7.7
1986 0.0 6.6 6.6 6.3
1987 0.0 6.3 6.3 5.9
1988 0.0 7.2 7.2 6.7
1989 0.0 9.2 9.2 8.6
1990 0.0 8.1 8.1 7.7
1991 0.0 6.2 6.2 5.7
1992 0.0 3.8 3.8 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.8 3.8 3.4
1995 0.0 5.8 5.8 5.3
1996 0.0 5.3 5.3 4.8
1997 0.0 5.4 5.4 4.9
1998 0.0 5.4 5.4 4.9
1999** 0.0 2.4 2.4 2.1
- --------------------------------------------------------
</TABLE>
*Average U.S. Government Money Market Fund.
**Six months ended May 31, 1999.
See Financial Highlights table on page 28 for dividend information for the past
five years.
SEC 7-Day Annualized Yield (5/31/1999): 4.60%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- ---------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Money Market Fund 7/13/1981 5.16% 5.23% 0.00% 5.44% 5.44%
- ---------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
<PAGE> 12
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
TREASURY MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: MARCH 9, 1983-MAY 31, 1999
- ---------------------------------------------------------
TREASURY MONEY MARKET FUND* AVERAGE
FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1983 0.0% 6.1% 6.1% 6.2%
1984 0.0 9.9 9.9 10.1
1985 0.0 7.5 7.5 7.9
1986 0.0 6.2 6.2 6.4
1987 0.0 6.0 6.0 6.0
1988 0.0 7.0 7.0 6.9
1989 0.0 8.9 8.9 8.7
1990 0.0 8.0 8.0 7.8
1991 0.0 5.9 5.9 5.8
1992 0.0 3.7 3.7 3.5
1993 0.0 2.9 2.9 2.6
1994 0.0 3.6 3.6 3.4
1995 0.0 5.5 5.5 5.2
1996 0.0 5.1 5.1 4.8
1997 0.0 5.1 5.1 4.8
1998 0.0 5.1 5.1 4.8
1999+ 0.0 2.2 2.2 2.0
- ---------------------------------------------------------
</TABLE>
*Prior to 12/2/1996, known as the U.S. Treasury Portfolio; prior to 3/13/1989,
total returns are for the Insured Portfolio.
**Average Money Market Fund through 3/31/1989; Average U.S. Treasury Money
Market Fund thereafter.
+Six months ended May 31, 1999.
See Financial Highlights table on page 28 for dividend information for the past
five years.
SEC 7-Day Annualized Yield (5/31/1999): 4.28%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1999*
- --------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Treasury Money Market Fund** 3/9/1983 4.82% 4.98% 0.00% 5.22% 5.22%
- --------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Prior to 12/2/1996, known as the U.S. Treasury Portfolio; prior to 3/13/1989,
total returns are for the Insured Portfolio.
10
<PAGE> 13
FUND PROFILE
PRIME MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999. Key elements of this Profile are defined below.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 4.6%
Yield--Institutional Shares 4.8%
Average Maturity 73 days
Average Quality Aa1
Expense Ratio 0.33%*
Expense Ratio--Institutional Shares 0.15%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
Certificates of Deposit 21.8%
Commercial Paper 42.6
Treasury/Agency 29.0
Other 6.6
- ------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------
<S> <C>
Treasury/Agency 29.0%
Aaa 11.1
Aa 38.5
A 21.4
Baa 0.0
Ba 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------
Total 100.0%
</TABLE>
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. Quality is graded on a scale, with Aaa or AAA indicating the most
creditworthy bond issuers and A-1 or MIG-1 indicating the most creditworthy
issuers of money market securities. U.S. Treasury securities are considered to
have the highest credit quality.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a fund's holdings by type of issuer or
type of instrument.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past seven days and is annualized, or projected forward for the coming year.
11
<PAGE> 14
FUND PROFILE
FEDERAL MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -------------------------------------------
<S> <C>
Yield 4.6%
Average Maturity 73 days
Average Quality Agency
Expense Ratio 0.33%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Treasury/Agency 100.0%
</TABLE>
FUND PROFILE
TREASURY MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
1999. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 4.3%
Average Maturity 70 days
Average Quality Treasury
Expense Ratio 0.33%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------
<S> <C>
Treasury 100.0%
</TABLE>
12
<PAGE> 15
FINANCIAL STATEMENTS
MAY 31, 1999 (UNAUDITED)
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings on the last day
of the reporting period, including each security's maturity date, coupon rate or
yield to maturity at the time of purchase, and statement-date market value.
Securities are grouped and subtotaled by type of instrument (U.S. government
obligations, commercial paper, certificates of deposit, etc.). Other assets are
added to, and liabilities are subtracted from, the value of Total Investments to
calculate the fund's Net Assets. Finally, Net Assets are divided by the
outstanding shares of the fund to arrive at its share price, or Net Asset Value
(NAV) Per Share. Each fund's objective is to maintain a constant NAV of $1.00
per share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund's net assets. Virtually the entire
amount of net assets consists of Paid in Capital (money invested by
shareholders). Undistributed Net Investment Income is usually zero because the
fund distributes its net income to shareholders as a dividend each day, and
Accumulated Realized Gains (Losses) are very small because the fund seldom
realizes any significant gains or losses on sales of securities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (28.9%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank 4.775% 8/12/1999 (1) $500,000 $ 499,597
Federal Home Loan Bank 4.793% 6/4/1999 (1) 485,000 484,995
Federal Home Loan Bank 4.80% 7/11/1999 (1) 200,000 199,915
Federal Home Loan Bank 4.817% 8/26/1999 (1) 685,000 684,872
Federal Home Loan Bank 4.82% 9/1/1999 (1) 500,000 499,815
Federal Home Loan Bank 4.90% 1/14/2000 87,950 87,877
Federal Home Loan Bank 4.93% 1/13/2000 380,000 380,002
Federal Home Loan Bank 4.93% 1/19/2000 200,000 199,939
Federal Home Loan Bank 5.10% 3/3/2000 250,000 249,909
Federal Home Loan Mortgage Corp. 4.705% 6/18/1999 (1) 900,000 899,308
Federal Home Loan Mortgage Corp. 4.721% 6/20/1999 (1) 250,000 249,840
Federal Home Loan Mortgage Corp. 4.757% 8/27/1999 (1) 500,000 499,830
Federal Home Loan Mortgage Corp. 4.867% 6/11/1999 125,000 124,835
Federal Home Loan Mortgage Corp. 4.924% 1/21/2011 167,794 162,602
Federal Home Loan Mortgage Corp. 4.98% 4/28/2000 500,000 499,610
Federal National Mortgage Assn. 4.715% 6/15/1999 (1) 540,000 539,758
Federal National Mortgage Assn. 4.715% 6/23/1999 (1) 490,000 489,945
Federal National Mortgage Assn. 4.72% 12/16/1999 400,000 399,918
Federal National Mortgage Assn. 4.735% 6/24/1999 (1) 250,000 249,859
Federal National Mortgage Assn. 4.76% 6/15/1999 470,000 469,984
Federal National Mortgage Assn. 4.765% 8/3/1999 (1) 340,000 339,954
Federal National Mortgage Assn. 4.766% 7/30/1999 (1) 475,000 474,940
Federal National Mortgage Assn. 4.77% 7/21/1999 (1) 300,000 299,968
Federal National Mortgage Assn. 4.77% 7/23/1999 (1) 800,000 799,910
Federal National Mortgage Assn. 4.82% 6/17/1999 (1) 500,000 499,911
Federal National Mortgage Assn. 4.866% 6/10/1999 25,000 24,970
Federal National Mortgage Assn. 5.11% 5/22/2000 200,000 199,910
U.S. Treasury Note 6.375% 1/15/2000 600,000 605,232
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $11,117,205) 11,117,205
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (42.4%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANK HOLDING COMPANIES (1.9%)
Bank of New York Co. Inc. 4.818% 6/21/1999 $ 75,000 $ 74,801
Citigroup 4.862% 6/28/1999 50,000 49,819
First Chicago Financial Corp. 4.91% 6/29/1999 25,000 24,906
Wells Fargo & Co. 4.866% 7/6/1999 100,000 99,529
Wells Fargo & Co. 4.868% 7/20/1999 200,000 198,691
Wells Fargo & Co. 4.878% 7/15/1999 200,000 198,823
Wells Fargo & Co. 4.889% 6/28/1999 75,000 74,728
------------
721,297
------------
FINANCE--AUTO (5.6%)
BMW US Capital Corp. 4.803% 6/2/1999 24,589 24,586
BMW US Capital Corp. 4.816% 6/4/1999 110,006 109,962
BMW US Capital Corp. 4.821% 6/7/1999 26,344 26,323
BMW US Capital Corp. 4.828% 6/23/1999 62,000 61,818
BMW US Capital Corp. 4.831% 6/14/1999 50,000 49,913
BMW US Capital Corp. 4.858% 6/3/1999 104,426 104,398
BMW US Capital Corp. 4.875% 6/10/1999 93,487 93,375
BMW US Capital Corp. 4.878% 6/15/1999 38,660 38,588
BMW US Capital Corp. 4.878% 6/16/1999 16,100 16,068
Daimler-Chrysler NA Holding Corp. 4.85% 7/8/1999 50,000 49,753
Daimler-Chrysler NA Holding Corp. 4.851% 7/14/1999 100,000 99,425
Daimler-Chrysler NA Holding Corp. 4.879% 6/17/1999 100,000 99,784
Daimler-Chrysler NA Holding Corp. 4.88% 7/12/1999 100,000 99,448
Daimler-Chrysler NA Holding Corp. 4.881% 7/13/1999 100,000 99,434
Ford Motor Credit Co. 4.815% 6/3/1999 40,000 39,989
Ford Motor Credit Co. 4.848% 7/22/1999 150,000 148,982
Ford Motor Credit Co. 4.86% 7/12/1999 300,000 298,360
Ford Motor Credit Co. 4.861% 7/8/1999 310,000 308,464
General Motors Acceptance Corp. 4.833% 6/10/1999 20,217 20,193
General Motors Acceptance Corp. 4.853% 7/13/1999 100,000 99,439
General Motors Acceptance Corp. 4.868% 7/15/1999 75,000 74,559
General Motors Acceptance Corp. 4.87% 7/14/1999 50,000 49,713
New Center Asset Trust 4.849% 6/3/1999 150,000 149,960
------------
2,162,534
------------
FINANCE--OTHER (18.8%)
A.I. Credit Corp. 4.869% 7/6/1999 25,000 24,883
American Express Credit Corp. 4.808% 6/8/1999 100,000 99,907
American Express Credit Corp. 4.84% 7/12/1999 100,000 99,453
American Express Credit Corp. 4.861% 7/13/1999 151,367 150,519
American Express Credit Corp. 4.871% 6/24/1999 150,000 149,538
American Express Credit Corp. 4.874% 6/28/1999 100,000 99,639
American Express Credit Corp. 4.875% 6/29/1999 50,000 49,813
American Express Credit Corp. 4.876% 6/30/1999 50,000 49,806
American General Corp. 4.814% 6/17/1999 25,000 24,947
American General Corp. 4.854% 7/14/1999 35,000 34,799
American General Corp. 4.874% 7/12/1999 25,000 24,862
Asset Securitization Cooperative Corp. 4.829% 6/10/1999 95,000 94,886
Asset Securitization Cooperative Corp. 4.83% 6/15/1999 50,000 49,906
Asset Securitization Cooperative Corp. 4.839% 6/3/1999 42,300 42,289
Asset Securitization Cooperative Corp. 4.859% 7/26/1999 40,000 39,707
Asset Securitization Cooperative Corp. 4.864% 6/9/1999 33,000 32,964
Asset Securitization Cooperative Corp. 4.867% 6/14/1999 55,000 54,904
Asset Securitization Cooperative Corp. 4.869% 6/16/1999 110,000 109,778
Asset Securitization Cooperative Corp. 4.892% 6/1/1999 75,000 75,000
Asset Securitization Cooperative Corp. 4.917% 7/19/1999 28,000 27,818
Associates Corp. of North America 4.845% 7/26/1999 50,000 49,639
Associates Corp. of North America 4.854% 7/20/1999 50,000 49,677
Associates Corp. of North America 4.884% 6/28/1999 50,000 49,819
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Associates Corp. of North America 4.969% 6/7/1999 $200,000 $ 199,838
Associates Corp. of North America 5.021% 6/18/1999 50,000 49,884
BellSouth Capital Funding Corp. 4.793% 6/4/1999 40,400 40,384
BellSouth Capital Funding Corp. 4.797% 6/10/1999 61,310 61,237
BellSouth Capital Funding Corp. 4.799% 6/14/1999 25,250 25,206
Caterpillar Financial Services Corp. 4.841% 7/14/1999 35,100 34,899
Caterpillar Financial Services Corp. 4.843% 6/16/1999 15,980 15,948
CIT Group Holdings Inc. 4.821% 6/8/1999 50,000 49,953
CIT Group Holdings Inc. 4.84% 7/13/1999 100,000 99,440
CIT Group Holdings Inc. 4.887% 6/22/1999 100,000 99,718
Centric Capital Corp. 4.838% 6/21/1999 89,000 88,762
Centric Capital Corp. 4.838% 6/23/1999 50,000 49,853
Centric Capital Corp. 4.863% 7/15/1999 25,000 24,853
Centric Capital Corp. 4.878% 6/16/1999 42,000 41,915
Centric Capital Corp. 4.879% 6/17/1999 44,500 44,404
Centric Capital Corp. 5.042% 7/26/1999 1,841 1,827
Ciesco LP 4.863% 6/17/1999 50,000 49,893
Ciesco LP 4.864% 7/1/1999 36,128 35,982
Ciesco LP 4.873% 6/24/1999 75,000 74,768
Commercial Credit Co. 4.817% 6/8/1999 50,000 49,953
Commercial Credit Co. 4.817% 6/9/1999 50,000 49,947
Commercial Credit Co. 4.818% 6/10/1999 25,000 24,970
Commercial Credit Co. 4.85% 6/21/1999 50,000 49,866
Commercial Credit Co. 4.858% 6/7/1999 40,000 39,968
Commercial Credit Co. 4.86% 6/24/1999 50,000 49,845
John Deere Capital Corp. 4.851% 7/14/1999 100,000 99,425
Delaware Funding 4.834% 6/17/1999 50,048 49,941
Delaware Funding 4.836% 6/18/1999 18,596 18,554
Delaware Funding 4.838% 6/22/1999 39,197 39,087
Delaware Funding 4.86% 7/13/1999 166,318 165,385
Delaware Funding 4.869% 7/26/1999 54,112 53,714
Delaware Funding 4.916% 6/21/1999 92,563 92,311
Enterprise Funding Corp. 4.833% 6/1/1999 50,000 50,000
Enterprise Funding Corp. 4.838% 6/11/1999 44,362 44,303
Enterprise Funding Corp. 4.838% 6/15/1999 50,216 50,122
Enterprise Funding Corp. 4.838% 6/23/1999 65,406 65,213
Enterprise Funding Corp. 4.839% 6/24/1999 87,856 87,585
Enterprise Funding Corp. 4.849% 6/3/1999 10,042 10,039
Enterprise Funding Corp. 4.864% 6/10/1999 48,997 48,938
Enterprise Funding Corp. 4.868% 6/17/1999 50,681 50,572
Enterprise Funding Corp. 4.887% 7/1/1999 109,620 109,176
Enterprise Funding Corp. 4.906% 6/25/1999 13,899 13,854
Enterprise Funding Corp. 4.907% 6/2/1999 10,611 10,610
First Chicago Financial Corp. 4.84% 6/24/1999 30,000 29,908
First Chicago Financial Corp. 4.899% 7/6/1999 47,500 47,276
General Electric Capital Corp. 4.853% 7/12/1999 370,000 367,972
General Electric Capital Corp. 4.899% 6/2/1999 100,000 99,987
General Electric Capital Corp. 4.912% 8/6/1999 100,000 99,124
General Electric Capital Corp. 4.913% 9/14/1999 100,000 98,597
General Electric Capital Corp. 4.944% 9/3/1999 100,000 98,755
General Electric Capital Corp. 4.988% 8/27/1999 50,000 49,419
General Electric Capital Corp. 5.011% 8/9/1999 200,000 198,149
General Electric Capital Corp. 5.019% 6/16/1999 50,000 49,898
General Electric Capital Corp. 5.036% 6/30/1999 100,000 99,604
Household Finance Corp. 4.813% 6/3/1999 100,000 99,973
Household Finance Corp. 4.816% 6/7/1999 100,000 99,920
Household Finance Corp. 4.866% 7/21/1999 200,000 198,661
International Business Machines Credit 4.794% 6/2/1999 100,000 99,987
International Business Machines Credit 4.851% 6/3/1999 18,900 18,895
International Business Machines Credit 4.854% 7/1/1999 250,000 248,994
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Lease Finance Corp. 4.84% 7/12/1999 $ 25,000 $ 24,863
International Lease Finance Corp. 4.891% 6/17/1999 50,000 49,893
Intrepid Funding 4.975% 6/3/1999 91,217 91,192
Preferred Receivables Funding Co. 4.831% 6/14/1999 50,000 49,913
Preferred Receivables Funding Co. 4.831% 6/15/1999 50,000 49,906
Preferred Receivables Funding Co. 4.834% 6/17/1999 151,360 151,036
Preferred Receivables Funding Co. 4.838% 6/25/1999 20,000 19,936
Preferred Receivables Funding Co. 4.842% 6/29/1999 108,575 108,169
Preferred Receivables Funding Co. 4.847% 6/9/1999 40,585 40,541
Preferred Receivables Funding Co. 4.858% 6/1/1999 15,160 15,160
Preferred Receivables Funding Co. 4.888% 6/3/1999 25,000 24,993
Riverwoods Funding Corp. 4.837% 6/1/1999 241,123 241,123
Triple A One Funding Corp. 4.828% 6/7/1999 107,673 107,587
Triple A One Funding Corp. 4.869% 6/16/1999 170,000 169,656
Triple A One Funding Corp. 4.869% 7/9/1999 169,102 168,241
------------
7,214,023
------------
INDUSTRIAL (3.7%)
Archer-Daniels-Midland Co. 4.84% 6/10/1999 22,500 22,473
Bayer Corp. 4.824% 7/22/1999 60,000 59,594
Campbell Soup Co. 4.881% 6/10/1999 15,000 14,982
Chevron Transport Co. 4.852% 6/23/1999 15,000 14,956
Chevron Transport Co. 4.873% 6/22/1999 15,000 14,958
Chevron Transport Co. 4.876% 7/21/1999 7,000 6,953
Chevron Transport Co. 4.912% 6/14/1999 25,000 24,956
Chevron Transport Co. 4.915% 6/17/1999 20,000 19,957
Deere & Co. 4.881% 7/12/1999 5,271 5,242
E.I. du Pont de Nemours & Co. 4.80% 6/2/1999 25,000 24,997
E.I. du Pont de Nemours & Co. 4.873% 6/24/1999 50,000 49,846
Electronic Data Systems Corp. 4.871% 6/15/1999 40,000 39,924
Electronic Data Systems Corp. 4.875% 6/21/1999 60,000 59,838
Equilon Enterprises LLC 4.856% 6/24/1999 20,000 19,939
Equilon Enterprises LLC 4.859% 7/8/1999 50,000 49,752
Equilon Enterprises LLC 4.89% 7/12/1999 20,000 19,889
Equilon Enterprises LLC 4.892% 7/15/1999 50,000 49,703
Equilon Enterprises LLC 4.901% 7/19/1999 20,000 19,872
Exxon Imperial U.S. Inc. 4.805% 6/2/1999 50,000 49,993
Exxon Imperial U.S. Inc. 4.816% 6/23/1999 50,000 49,853
First Data Corp. 4.818% 6/1/1999 30,000 30,000
First Data Corp. 4.821% 6/8/1999 85,750 85,670
First Data Corp. 4.889% 6/15/1999 25,000 24,953
Gannett Co. 4.797% 6/10/1999 111,700 111,567
H.J. Heinz Co. 4.831% 6/22/1999 40,000 39,888
International Business Machines Corp. 4.837% 6/24/1999 41,500 41,372
Lucent Technologies 4.817% 6/24/1999 40,000 39,877
Lucent Technologies 4.843% 6/9/1999 25,000 24,973
Lucent Technologies 4.846% 6/4/1999 91,000 90,963
Minnesota Mining and Manufacturing Co. 4.883% 6/21/1999 45,000 44,880
Pfizer Inc. 4.822% 6/8/1999 30,000 29,972
Pfizer Inc. 4.823% 6/10/1999 192,000 191,770
Procter & Gamble 4.847% 7/9/1999 60,000 59,719
Vermont American Corp. 4.798% 6/10/1999 14,097 14,080
------------
1,447,361
------------
INSURANCE (2.3%)
AIG Funding Inc. 4.865% 6/29/1999 74,712 74,432
AIG Funding Inc. 4.871% 9/7/1999 37,000 36,527
John Hancock Capital Corp. 4.804% 6/1/1999 11,785 11,785
John Hancock Capital Corp. 4.819% 6/25/1999 50,000 49,840
Marsh & McLennan Co. Inc. 4.804% 6/1/1999 42,243 42,243
Metlife Funding Inc. 4.794% 6/2/1999 62,094 62,086
Metlife Funding Inc. 4.799% 6/10/1999 100,439 100,319
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Metlife Funding Inc. 4.806% 6/8/1999 $ 45,158 $ 45,116
Metlife Funding Inc. 4.819% 6/4/1999 28,453 28,442
Metlife Funding Inc. 4.829% 6/3/1999 50,000 49,987
Metlife Funding Inc. 4.846% 6/14/1999 37,165 37,100
New York Life Capital Corp. 4.866% 6/11/1999 120,000 119,840
Prudential Funding 4.843% 6/3/1999 80,000 79,979
Prudential Funding 4.86% 7/7/1999 51,571 51,322
USAA Capital Corp. 4.779% 6/9/1999 25,000 24,973
USAA Capital Corp. 4.80% 6/4/1999 25,000 24,990
USAA Capital Corp. 4.805% 6/2/1999 20,000 19,997
USAA Capital Corp. 6.75% 12/15/1999 20,000 20,188
------------
879,166
------------
UTILITIES (1.2%)
AT&T Corp. 4.806% 6/4/1999 21,900 21,891
AT&T Corp. 4.818% 6/2/1999 161,703 161,681
AT&T Corp. 4.831% 6/30/1999 100,000 99,613
AT&T Corp. 4.837% 6/16/1999 50,000 49,900
AT&T Corp. 4.838% 6/18/1999 50,000 49,886
Southern California Edison 4.839% 7/7/1999 11,712 11,656
Southern California Edison 4.86% 6/7/1999 45,122 45,086
Southern California Edison 4.927% 7/12/1999 30,000 29,836
------------
469,549
------------
FOREIGN BANKS (5.3%)
Abbey National North American Corp. 4.82% 6/9/1999 55,000 54,941
ABN-AMRO North America Finance Inc. 4.98% 7/6/1999 43,420 43,216
ABN-AMRO North America Finance Inc. 5.066% 6/30/1999 100,000 99,602
Bank of Montreal 4.819% 6/8/1999 100,000 99,906
Bayerische Landesbank Girozentrale 4.832% 6/1/1999 300,000 300,000
CBA (Delaware) Finance Inc. 4.848% 6/18/1999 175,000 174,601
CBA (Delaware) Finance Inc. 4.868% 7/13/1999 65,000 64,635
CBA (Delaware) Finance Inc. 4.868% 7/15/1999 13,000 12,924
CBA (Delaware) Finance Inc. 4.869% 7/14/1999 58,000 57,667
Cregem North America Inc. 4.84% 6/25/1999 80,000 79,744
Cregem North America Inc. 4.869% 7/22/1999 74,000 73,496
Cregem North America Inc. 4.869% 7/23/1999 100,000 99,305
Cregem North America Inc. 4.872% 7/19/1999 50,000 49,679
Cregem North America Inc. 4.872% 7/28/1999 25,000 24,810
Cregem North America Inc. 4.881% 7/15/1999 150,000 149,116
Cregem North America Inc. 4.95% 6/18/1999 100,000 99,772
Halifax PLC 4.812% 6/1/1999 16,826 16,826
Internationale Nederlanden U.S. Funding 4.88% 7/21/1999 100,000 99,331
Lloyds Bank 4.929% 7/7/1999 100,000 99,519
UBS Finance Inc. 4.951% 12/27/1999 100,000 97,219
UBS Finance Inc. 4.974% 12/23/1999 139,231 135,409
UBS Finance Inc. 5.043% 12/13/1999 100,000 97,346
------------
2,029,064
------------
CANADIAN GOVERNMENT--NATIONAL & PROVINCIAL (0.1%)
Canadian Wheat Board 4.84% 6/21/1999 11,200 11,170
Province of Ontario 5.00% 8/17/1999 (1) 25,000 25,002
------------
36,172
------------
OTHER FOREIGN GOVERNMENT (2.0%)
Caisse d'Amortissement de la Dette Sociale 4.904% 10/8/1999 150,000 147,458
Caisse des Depots et Consignations 4.818% 6/3/1999 200,000 199,947
Caisse des Depots et Consignations 4.833% 6/2/1999 300,000 299,960
Oesterreichische Kontrollbank 4.831% 6/7/1999 29,600 29,576
Oesterreichische Kontollbank 4.907% 6/1/1999 100,000 99,866
------------
776,807
------------
FOREIGN INDUSTRIAL (1.3%)
Diageo Capital PLC 4.861% 6/1/1999 181,000 181,000
Diageo Capital PLC 4.869% 7/23/1999 40,000 39,722
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diageo Capital PLC 4.887% 6/11/1999 $ 41,000 $ 40,945
Diageo Capital PLC 4.89% 7/1/1999 50,000 49,799
Diageo Capital PLC 4.913% 6/9/1999 65,000 64,930
Glaxo Wellcome PLC 4.889% 6/24/1999 20,000 19,938
Glaxo Wellcome PLC 4.891% 6/28/1999 44,000 43,841
Reed Elsevier 4.878% 6/14/1999 30,000 29,948
Reed Elsevier 4.902% 6/4/1999 25,000 24,990
------------
495,113
------------
FOREIGN UTILITIES (0.2%)
France Telecom 4.818% 6/11/1999 13,976 13,957
France Telecom 4.899% 7/1/1999 23,440 23,346
Telstra Corp. 4.913% 6/21/1999 22,500 22,439
Telstra Corp. 4.919% 7/1/1999 30,000 29,879
------------
89,621
------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $16,320,707) 16,320,707
- --------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.3%)
- --------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--U.S. BANKS (2.7%)
Bank of America N.T.S.A. 5.24% 9/22/1999 100,000 100,000
Chase Manhattan Bank 4.87% 7/21/1999 200,000 200,000
Chase Manhattan Bank 4.87% 7/21/1999 50,000 49,997
Chase Manhattan Bank 4.90% 8/9/1999 200,000 200,000
Nationsbank N.A. 4.99% 1/11/2000 21,000 21,005
State Street Bank & Trust 4.89% 6/24/1999 100,000 100,000
State Street Bank & Trust 4.96% 9/23/1999 50,000 50,000
U.S. Bank N.A. 4.88% 7/30/1999 90,000 90,000
U.S. Bank N.A. 4.89% 8/5/1999 110,000 110,000
Wachovia Bank 4.978% 7/26/1999 (1) 95,000 94,992
------------
1,015,994
------------
YANKEE CERTIFICATES OF DEPOSIT--U.S. BRANCHES (14.6%)
ABN-AMRO Bank 4.96% 11/16/1999 45,000 44,991
ABN-AMRO Bank 4.98% 9/28/1999 50,000 49,997
ABN-AMRO Bank 5.04% 4/17/2000 100,000 99,949
ABN-AMRO Bank 5.05% 6/28/1999 50,000 50,000
ABN-AMRO Bank 5.10% 2/22/2000 61,500 61,478
Bank of Montreal 4.82% 6/24/1999 200,000 200,000
Bank of Montreal 4.87% 7/14/1999 100,000 100,000
Barclays Bank PLC 4.761% 6/1/1999 (1) 200,000 200,000
Barclays Bank PLC 4.766% 6/2/1999 (1) 100,000 100,000
Barclays Bank PLC 5.23% 3/1/2000 100,000 99,949
Bayerische Landesbank Girozentrale 4.87% 6/3/1999 300,000 300,000
Bayerische Landesbank Girozentrale 4.87% 7/8/1999 50,000 50,000
Bayerische Landesbank Girozentrale 4.87% 7/15/1999 100,000 100,000
Canadian Imperial Bank of Commerce 4.90% 6/30/1999 100,000 100,000
Credit Agricole Indosuez 4.93% 7/6/1999 250,000 250,000
Deutsche Bank 4.83% 6/28/1999 150,000 150,001
Deutsche Bank 4.84% 7/27/1999 150,000 150,000
Deutsche Bank 4.85% 7/27/1999 40,000 40,000
Deutsche Bank 4.90% 7/6/1999 112,000 112,003
Deutsche Bank 4.93% 6/2/1999 50,000 50,000
Deutsche Bank 4.93% 7/6/1999 100,000 100,000
Dresdner Bank 4.81% 6/14/1999 300,000 300,000
Lloyds Bank 4.95% 6/23/1999 100,000 100,000
Lloyds Bank 4.97% 6/11/1999 42,400 42,400
National Westminster Bank 4.98% 1/7/2000 75,000 75,002
National Westminster Bank 5.047% 2/9/2000 98,800 98,742
National Westminster Bank 5.06% 2/10/2000 100,000 99,973
National Westminster Bank 5.105% 2/22/2000 100,000 99,975
Rabobank Nederlanden 4.843% 6/4/1999 100,000 100,000
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rabobank Nederlanden 5.00% 1/24/2000 $ 50,000 $ 49,991
Rabobank Nederlanden 5.08% 4/12/2000 97,000 96,951
Rabobank Nederlanden 5.095% 2/22/2000 100,000 99,975
Rabobank Nederlanden 5.125% 2/18/2000 25,000 24,997
Rabobank Nederlanden 5.15% 3/20/2000 100,000 99,969
Rabobank Nederlanden 5.165% 3/15/2000 100,000 99,947
Rabobank Nederlanden 5.25% 3/2/2000 200,000 199,942
Rabobank Nederlanden 5.28% 9/10/1999 50,000 50,037
Swiss Bank Corp. 5.68% 6/3/1999 250,000 249,999
Swiss Bank Corp. 5.69% 6/3/1999 50,000 50,000
Swiss Bank Corp. 5.74% 6/9/1999 62,000 62,006
Swiss Bank Corp. 5.74% 6/11/1999 125,000 125,015
Toronto Dominion Bank 5.71% 6/15/1999 100,000 100,033
UBS AG 5.08% 4/12/2000 100,000 99,950
UBS AG 5.20% 2/29/2000 130,000 129,972
UBS AG 5.24% 3/1/2000 150,000 149,967
UBS AG 5.285% 3/1/2000 100,000 99,986
UBS AG 5.695% 6/30/1999 18,000 18,010
Westdeutsche Landesbank 4.83% 6/28/1999 300,000 300,000
Westdeutsche Landesbank 4.87% 7/22/1999 200,000 200,000
------------
5,631,207
------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $6,647,201) 6,647,201
- --------------------------------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
Abbey National PLC 4.90% 7/1/1999 100,000 100,000
Abbey National PLC 4.94% 7/7/1999 100,000 100,000
Barclays Bank PLC 4.93% 6/14/1999 100,000 100,001
Barclays Bank PLC 4.97% 6/14/1999 50,000 50,000
Bayerische Hypo und Vereinsbank 4.87% 7/22/1999 100,000 100,000
Credit Agricole Indosuez 4.95% 10/12/1999 50,000 50,000
Dresdner Bank AG 4.86% 6/14/1999 100,000 100,000
Halifax PLC 4.84% 7/19/1999 200,000 200,003
Halifax PLC 4.93% 10/8/1999 100,000 100,003
Halifax PLC 5.02% 12/20/1999 100,000 100,000
Halifax PLC 5.07% 12/21/1999 100,000 100,000
Halifax PLC 5.12% 4/10/2000 200,000 200,000
Landesbank Hessen-Thueringen 4.865% 7/1/1999 200,000 200,000
Landesbank Hessen-Thueringen 4.87% 7/19/1999 50,000 50,000
Lloyds Bank 5.25% 9/15/1999 25,000 25,017
Toronto Dominion 4.88% 7/22/1999 50,000 50,000
Westdeutsche Landesbank 4.90% 7/6/1999 100,000 100,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $1,725,024) 1,725,024
- --------------------------------------------------------------------------------------------------------------------------
OTHER NOTES (6.6%)
- --------------------------------------------------------------------------------------------------------------------------
Abbey National Treasury Services 4.801% 6/20/1999 (1) 250,000 249,861
Abbey National Treasury Services 5.05% 4/17/2000 146,000 145,909
Abbey National Treasury Services 5.14% 4/25/2000 100,000 99,948
Abbey National Treasury Services 5.25% 3/1/2000 150,000 149,946
Abbey National Treasury Services 5.645% 6/1/1999 100,000 100,000
Bank of America N.T.S.A 4.761% 6/1/1999 (1) 94,000 94,000
FCC National Bank 4.96% 6/14/1999 200,000 200,000
FCC National Bank 4.96% 6/15/1999 50,000 50,000
FCC National Bank 4.98% 7/6/1999 100,000 100,001
First National Bank of Chicago 5.09% 4/19/2000 100,000 99,949
First National Bank of Chicago 5.13% 3/24/2000 200,000 199,922
First National Bank of Chicago 5.13% 4/4/2000 150,000 149,939
First Union National Bank 4.88% 6/1/1999 75,000 75,000
LaSalle National Bank 4.87% 7/14/1999 100,000 100,000
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LaSalle National Bank 4.92% 6/28/1999 $ 10,000 $ 10,000
LaSalle National Bank 5.02% 6/3/1999 100,000 100,000
Nationsbank N.A. 4.82% 7/6/1999 200,000 200,000
Nationsbank N.A. 4.87% 12/16/1999 100,000 99,984
Nationsbank N.A. 5.135% 3/20/2000 150,000 149,954
Wells Fargo & Co. 5.55% 8/31/1999 50,000 50,046
Wachovia Bank 4.85% 7/22/1999 50,000 50,000
Wachovia Bank 4.90% 1/10/2000 50,000 49,958
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $2,524,417) 2,524,417
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(COST $38,334,554) 38,334,554
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 365,637
Liabilities (248,728)
------------
116,909
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $38,451,463
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
(1) Adjustable Rate Note.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $38,451,953
Undistributed Net Investment Income --
Accumulated Net Realized Losses (490)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $38,451,463
==========================================================================================================================
Investor Shares--Net Assets applicable to 37,193,640,992 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $37,193,174
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $1.00
==========================================================================================================================
Institutional Shares--Net Assets applicable to 1,258,309,264 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,258,289
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $1.00
==========================================================================================================================
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (93.4%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 4.76% 1/18/2000 $125,000 $ 124,917
Federal Farm Credit Bank 4.866% 6/28/1999 43,000 42,848
Federal Home Loan Bank 4.721% 6/8/1999 (1) 70,000 69,991
Federal Home Loan Bank 4.775% 8/12/1999 (1) 140,000 139,888
Federal Home Loan Bank 4.80% 7/11/1999 (1) 90,000 89,962
Federal Home Loan Bank 4.80% 2/4/2000 150,000 149,875
Federal Home Loan Bank 4.818% 6/23/1999 103,557 103,255
Federal Home Loan Bank 4.82% 9/1/1999 (1) 150,000 149,945
Federal Home Loan Bank 4.93% 1/13/2000 60,000 60,000
Federal Home Loan Bank 5.15% 3/8/2000 50,000 50,008
Federal Home Loan Bank 5.63% 6/15/1999 14,000 14,004
Federal Home Loan Mortgage Corp. 4.705% 6/18/1999 (1) 200,000 199,846
Federal Home Loan Mortgage Corp. 4.765% 6/15/1999 100,000 99,816
Federal Home Loan Mortgage Corp. 4.775% 6/30/1999 370,000 368,583
Federal Home Loan Mortgage Corp. 4.776% 7/12/1999 150,000 149,194
Federal Home Loan Mortgage Corp. 4.777% 7/13/1999 25,000 24,862
Federal Home Loan Mortgage Corp. 4.812% 7/14/1999 160,000 159,092
Federal Home Loan Mortgage Corp. 4.837% 6/28/1999 9,719 9,684
Federal Home Loan Mortgage Corp. 4.867% 6/11/1999 100,000 99,867
Federal Home Loan Mortgage Corp. 4.867% 7/9/1999 117,227 116,635
Federal Home Loan Mortgage Corp. 4.899% 6/10/1999 253,387 253,084
Federal Home Loan Mortgage Corp. 4.92% 6/4/1999 35,000 34,986
Federal Home Loan Mortgage Corp. 4.924% 1/21/2000 120,000 116,287
Federal Home Loan Mortgage Corp. 4.98% 4/28/2000 50,000 49,961
Federal Home Loan Mortgage Corp. 7.125% 7/21/1999 14,000 14,041
Federal National Mortgage Assn. 4.715% 6/15/1999 (1) 300,000 299,865
Federal National Mortgage Assn. 4.72% 12/16/1999 40,000 39,992
Federal National Mortgage Assn. 4.735% 6/24/1999 (1) 220,000 219,876
Federal National Mortgage Assn. 4.76% 6/15/1999 15,000 14,999
Federal National Mortgage Assn. 4.765% 8/3/1999 (1) 160,000 159,978
Federal National Mortgage Assn. 4.769% 7/1/1999 108,129 107,702
Federal National Mortgage Assn. 4.77% 7/21/1999 (1) 100,000 99,989
Federal National Mortgage Assn. 4.77% 7/23/1999 (1) 200,000 199,978
Federal National Mortgage Assn. 4.78% 11/30/1999 65,000 64,969
Federal National Mortgage Assn. 4.823% 6/22/1999 42,740 42,621
Federal National Mortgage Assn. 4.847% 6/3/1999 50,000 49,987
Federal National Mortgage Assn. 4.866% 6/10/1999 50,000 49,940
Federal National Mortgage Assn. 4.868% 8/2/1999 21,300 21,123
Federal National Mortgage Assn. 4.98% 3/24/2000 50,000 49,957
Federal National Mortgage Assn. 5.05% 5/12/2000 50,000 49,966
Federal National Mortgage Assn. 5.18% 3/10/2000 40,000 39,977
Federal National Mortgage Assn. 5.346% 8/27/1999 50,000 49,386
Federal National Mortgage Assn. 5.49% 8/3/1999 50,000 49,987
Federal National Mortgage Assn. 5.52% 8/9/1999 60,000 59,987
Federal National Mortgage Assn. 6.60% 6/24/1999 20,000 20,025
Federal National Mortgage Assn. 7.23% 9/15/1999 15,000 15,100
Overseas Private Investment Corp. (U.S. Government Guaranteed) 4.95% 6/15/1999 (1) 23,333 23,333
Overseas Private Investment Corp. (U.S. Government Guaranteed) 4.95% 7/15/1999 (1) 11,275 11,275
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $4,430,643) 4,430,643
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (6.3%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Warburg Dillon Read
(Dated 5/28/1999, Repurchase Value $20,829,000
Collateralized by U.S. Treasury Bond 9.25%, 2/15/2016) 4.75% 6/1/1999 $ 20,818 $ 20,818
Nationsbank/N.A.
(Dated 5/28/1999, Repurchase Value $280,153,000
Collateralized by Federal National Mortgage Assn. 6.0% 10/1/2013) 4.91% 6/1/1999 280,000 280,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $300,818) 300,818
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(COST $4,731,461) 4,731,461
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 34,467
Liabilities (22,646)
-----------
11,821
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 4,743,292,888 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $4,743,282
==========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
(1) Adjustable Rate Note.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $4,743,322 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (40) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $4,743,282 $1.00
==========================================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TREASURY MONEY MARKET FUND YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (99.0%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill 4.729%-4.764% 6/15/1999 $572,000 $ 570,947
U.S. Treasury Bill 4.381%-4.402% 7/15/1999 93,687 93,188
U.S. Treasury Bill 4.357%-4.42% 7/22/1999 35,129 34,913
U.S. Treasury Bill 4.453%-4.482% 8/5/1999 96,113 95,343
U.S. Treasury Bill 4.493%-4.564% 8/12/1999 375,197 371,846
U.S. Treasury Bill 4.548% 8/19/1999 723 716
U.S. Treasury Bill 4.541%-4.569% 8/26/1999 310,000 306,673
U.S. Treasury Bond 5.625% 11/30/1999 45,000 45,194
U.S. Treasury Note 5.625% 10/31/1999 30,000 30,105
U.S. Treasury Note 5.75% 9/30/1999 45,000 45,157
U.S. Treasury Note 5.875% 7/31/1999 746,326 747,692
U.S. Treasury Note 5.875% 8/31/1999 225,000 225,616
U.S. Treasury Note 6.00% 6/30/1999 185,000 185,205
U.S. Treasury Note 6.00% 8/15/1999 650,000 651,773
U.S. Treasury Note 6.375% 7/15/1999 165,000 165,350
U.S. Treasury Note 6.375% 1/15/2000 45,000 45,395
U.S. Treasury Note 6.75% 6/30/1999 25,000 25,042
U.S. Treasury Note 6.875% 7/31/1999 200,627 201,319
U.S. Treasury Note 6.875% 8/31/1999 140,734 141,470
U.S. Treasury Note 6.875% 3/31/2000 45,000 45,738
U.S. Treasury Note 7.125% 9/30/1999 50,000 50,383
U.S. Treasury Note 7.50% 10/31/1999 135,000 136,511
U.S. Treasury Note 7.75% 11/30/1999 45,000 45,659
U.S. Treasury Note 8.50% 2/15/2000 32,000 32,809
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $4,294,044) 4,294,044
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (1.0%) 41,704
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 4,335,468,728 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $4,335,748
==========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in Securities, at Value $4,294,044
Receivables for Investment Securities Sold 1,073,316
Other Assets--Note B 99,807
------------
Total Assets 5,467,167
------------
LIABILITIES
Payables for Investment Securities Purchased 1,112,870
Other Liabilities 18,549
------------
Total Liabilities 1,131,419
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $4,335,748
==========================================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $4,335,488 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 260 --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $4,335,748 $1.00
==========================================================================================================================
</TABLE>
23
<PAGE> 26
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to each class of its shares. Expenses
directly reduce the amount of investment income available to pay to shareholders
as income dividends. This Statement also shows any Net Gain (Loss) realized on
the sale of investments, and any Unrealized Appreciation (Depreciation) on
investments during the period. For money market funds, Realized Net Gain (Loss)
should always be minimal and Unrealized Appreciation (Depreciation) should be
zero.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIME FEDERAL TREASURY
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
--------------------------------------------------
SIX MONTHS ENDED MAY 31, 1999
--------------------------------------------------
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $936,514 $113,939 $97,935
--------------------------------------------------
Total Income 936,514 113,939 97,935
--------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 2,165 266 248
Management and Administrative 17,565 2,260 2,296
Shareholder Account Maintenance(1) 34,170 4,295 3,772
Marketing and Distribution(1) 4,773 587 547
Custodian Fees 516 31 15
Auditing Fees 15 5 5
Shareholders' Reports(1) 428 36 34
Trustees' Fees and Expenses 29 4 3
--------------------------------------------------
Total Expenses 59,661 7,484 6,920
Expenses Paid Indirectly--Note C (8) (2) (4)
--------------------------------------------------
Net Expenses 59,653 7,482 6,916
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 876,861 106,457 91,019
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 33 30 184
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES -- -- --
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $876,894 $106,487 $91,203
=========================================================================================================================
</TABLE>
(1)Expenses of the Prime Money Market Fund by Class are:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(000)
--------------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $34,061 $109 $34,170
Marketing and Distribution 4,625 148 4,773
Shareholders' Reports 417 11 428
--------------------------------------------------
Total Class-Specific Expenses 39,103 268 39,371
All Other Fund Expenses 19,559 731 20,290
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses $58,662 $999 $59,661
=========================================================================================================================
</TABLE>
See Note D in Notes to Financial Statements.
24
<PAGE> 27
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its income
to shareholders each day, the amounts of Dividends from Net Investment Income
generally equal the net income earned as shown under the Operations section. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, and the
amounts redeemed. Dividends and Capital Share Transactions are shown separately
for each class of shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 1999 NOV. 30, 1998
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 876,861 $ 1,612,115
Realized Net Gain (Loss) 33 (414)
Unrealized Appreciation (Depreciation) -- --
---------------------------------
Net Increase in Net Assets Resulting from Operations 876,894 1,611,701
---------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares (844,084) (1,566,704)
Institutional Shares (32,777) (45,411)
---------------------------------
Total Dividends (876,861) (1,612,115)
---------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES (AT $1.00)
Issued 26,420,059 40,996,560
Issued in Lieu of Cash Distributions 810,671 1,502,710
Redeemed (23,769,987) (35,246,336)
---------------------------------
Net Increase--Investor Shares 3,460,743 7,252,934
---------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES (AT $1.00)
Issued 1,626,172 1,343,463
Issued in Lieu of Cash Distributions 29,531 43,052
Redeemed (1,540,343) (1,194,286)
---------------------------------
Net Increase--Institutional Shares 115,360 192,229
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 3,576,136 7,444,749
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 34,875,327 27,430,578
---------------------------------
End of Period $38,451,463 $34,875,327
=========================================================================================================================
</TABLE>
25
<PAGE> 28
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FEDERAL MONEY MARKET FUND TREASURY MONEY MARKET FUND
---------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAY 31, 1999 NOV. 30, 1998 MAY 31, 1999 NOV. 30, 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 106,457 $ 196,905 $ 91,019 $ 176,087
Realized Net Gain (Loss) 30 8 184 117
Unrealized Appreciation (Depreciation) -- -- -- --
---------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 106,487 196,913 91,203 176,204
---------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME (106,457) (196,905) (91,019) (176,087)
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (AT $1.00)
Issued 2,478,386 3,829,342 2,701,085 4,266,305
Issued in Lieu of Cash Distributions 102,365 189,680 87,071 168,890
Redeemed (2,100,401) (3,251,422) (2,394,843) (3,729,654)
---------------------------------------------------------------------
Net Increase from Capital Share Transactions 480,350 767,600 393,313 705,541
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 480,380 767,608 393,497 705,658
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 4,262,902 3,495,294 3,942,251 3,236,593
---------------------------------------------------------------------
End of Period $4,743,282 $4,262,902 $4,335,748 $3,942,251
=========================================================================================================================
</TABLE>
26
<PAGE> 29
FINANCIAL HIGHLIGHTS
Each fund's objective is to maintain a constant NAV of $1.00 per share by
distributing all of its income and avoiding capital gains or losses. The
financial highlights table summarizes each fund's investment results and
distributions to shareholders on a per-share basis for each class of shares. The
table also presents the Total Return and shows net investment income and
expenses as percentages of average net assets for each fund or class of shares.
These data will help you assess the variability of net income returns from year
to year and how much it costs to operate the fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND INVESTOR SHARES
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .024 .053 .053 .052 .057 .038
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
------------------------------------------------------------------------
Total from Investment Operations .024 .053 .053 .052 .057 .038
------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.024) (.053) (.053) (.052) (.057) (.038)
Distributions from Realized Capital Gains -- -- -- -- -- --
------------------------------------------------------------------------
Total Distributions (.024) (.053) (.053) (.052) (.057) (.038)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 2.40% 5.42% 5.41% 5.31% 5.82% 3.87%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $37,193 $33,732 $26,480 $22,218 $18,764 $15,109
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.33% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 4.75%* 5.28% 5.28% 5.18% 5.64% 3.84%
=========================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND INSTITUTIONAL SHARES
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------- OCT. 28* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 NOV. 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .025 .055 .054 .054 .005
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
--------------------------------------------------------------
Total from Investment Operations .025 .055 .054 .054 .005
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.025) (.055) (.054) (.054) (.005)
Distributions from Realized Capital Gains -- -- -- -- --
--------------------------------------------------------------
Total Distributions (.025) (.055) (.054) (.054) (.005)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================================================
TOTAL RETURN 2.48% 5.61% 5.59% 5.49% 0.53%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,258 $1,143 $951 $910 $793
Ratio of Total Expenses to Average Net Assets 0.15%** 0.15% 0.15% 0.15% 0.15%**
Ratio of Net Investment Income to Average Net Assets 4.92%** 5.46% 5.44% 5.35% 5.65%**
===========================================================================================================================
</TABLE>
*Inception.
**Annualized.
27
<PAGE> 30
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FEDERAL MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .023 .052 .052 .051 .056 .038
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
------------------------------------------------------------------------
Total from Investment Operations .023 .052 .052 .051 .056 .038
------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.023) (.052) (.052) (.051) (.056) (.038)
Distributions from Realized Capital Gains -- -- -- -- -- --
------------------------------------------------------------------------
Total Distributions (.023) (.052) (.052) (.051) (.056) (.038)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 2.37% 5.35 % 5.35% 5.26% 5.77% 3.82%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,743 $4,263 $3,495 $3,100 $2,637 $2,196
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.33% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 4.69%* 5.21% 5.22% 5.13% 5.61% 3.78%
=========================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .022 .050 .050 .050 .053 .036
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
------------------------------------------------------------------------
Total from Investment Operations .022 .050 .050 .050 .053 .036
------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.022) (.050) (.050) (.050) (.053) (.036)
Distributions from Realized Capital Gains -- -- -- -- -- --
------------------------------------------------------------------------
Total Distributions (.022) (.050) (.050) (.050) (.053) (.036)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 2.19% 5.06% 5.10% 5.11% 5.47% 3.63%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,336 $3,942 $3,237 $2,917 $2,527 $2,056
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.33% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 4.34%* 4.94% 4.98% 4.99% 5.33% 3.59%
=========================================================================================================================
</TABLE>
*Annualized.
28
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
Vanguard Money Market Funds comprise the Prime Money Market Fund, Federal Money
Market Fund, and Treasury Money Market Fund, each of which is registered under
the Investment Company Act of 1940 as a diversified open-end investment company,
or mutual fund. The Prime Money Market Fund invests in short-term debt
instruments of companies primarily operating in specific industries; the
issuers' abilities to meet their obligations may be affected by economic
developments in such industries. The Federal Money Market Fund invests in
short-term debt instruments issued by the U.S. government or its agencies and
instrumentalities. The Treasury Money Market Fund invests in short-term debt
instruments backed by the full faith and credit of the U.S. government.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The funds consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: Securities are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold. Discounts and premiums are accreted and amortized,
respectively, to interest income over the lives of the respective securities.
Dividends from net investment income are declared daily and paid on the first
business day of the following month.
4. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, shareholder accounting, marketing, and distribution
services. The costs of such services are allocated to each fund under methods
approved by the Board of Trustees. Each fund has committed to provide up to
0.40% of its assets in capital contributions to Vanguard. At May 31, 1999, the
funds had contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF PORTFOLIO OF VANGUARD'S
MONEY MARKET FUND (000) NET ASSETS CAPITALIZATION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime $5,643 0.02% 8.1%
Federal 721 0.02 1.0
Treasury 665 0.02 0.9
- ---------------------------------------------------------------------------------------------------
</TABLE>
The funds' Trustees and officers are also Directors and officers of Vanguard.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (continued)
C. The funds' custodian bank has agreed to reduce its fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
six months ended May 31, 1999, custodian fee offset arrangements reduced
expenses by:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
EXPENSE REDUCTION
MONEY MARKET FUND (000)
- ---------------------------------------------------------
<S> <C>
Prime $8
Federal 2
Treasury 4
- ---------------------------------------------------------
</TABLE>
D. The Prime Money Market Fund offers two classes of shares, the Investor Shares
and the Institutional Shares. Institutional shares are designed primarily for
institutional investors that meet certain administrative and servicing criteria
and have a minimum investment of $10 million. Investor shares are offered to all
other investors. Both classes of shares have equal rights as to assets and
earnings, except that each class bears certain class-specific expenses related
to its shareholder activity. For the six months ended May 31, 1999,
class-specific expenses of the Investor Shares and Institutional Shares
represented effective annual rates of 0.22% and 0.04%, respectively, of their
average net assets. Income, expenses not attributable to a specific class, and
gains and losses on investments are allocated to each class of shares based on
its relative net assets.
30
<PAGE> 33
NOTICE TO SHAREHOLDERS ABOUT Y2K
As is well known by now, the approaching calendar change to 2000 has posed a
challenge to many computer systems worldwide. Computers that are not modified
could interpret "00" as 1900 rather than 2000 and produce errors in
date-dependent calculations, including bond interest payments, stock trade
settlements, retirement benefits, and other financial transactions.
OUR APPROACH
Vanguard has taken this challenge seriously. We have had a Year 2000 Project
under way since 1996 to fulfill our responsibility to safeguard our business
relationships and the security of our investors' accounts.
Our internal systems are Year 2000-compliant. They have been renovated
and thoroughly tested and are ready for the date change. As for the external
systems that connect with ours, we have been working for many months with
clients, business partners, and providers of products and services to assess
their compliance. We have analyzed the external services we require and have
developed contingency plans--including provision for alternative providers where
appropriate.
On New Year's Day, our telephone centers will be staffed and ready for
shareholder calls. However, we expect the volume of inquiries over the New
Year's weekend to be high, and we encourage shareholders to check their accounts
via our website or automated telephone systems, which offer much greater service
capacity and efficiency. This will also help our live representatives to provide
a higher level of service to those with specific transaction or other
service-related needs.
WHAT YOU CAN DO
We assure you we will protect our shareholders' records, so account records will
not be lost. Nevertheless, keeping copies of current records is always
advisable. You should keep at least your third-quarter statement and any
confirmations you receive from us between October 1, 1999, and year-end.
If you are a registered user of Access Vanguard(TM) (www.vanguard.com),
you can retrieve this information through the secure "Your Accounts" section and
print copies for your files. If you are not registered for Access Vanguard and
wish to have this flexibility, you should register as soon as possible so that
you can receive your password and become familiar with this service before the
New Year's weekend. Likewise, you may need personal identification numbers to
use our automated telephone services: Vanguard Tele-Account(R) for individual
investors (1-800-662-6273) and The VOICE(TM) Network for participants in
employer-sponsored retirement plans (1-800-523-1188).
Our Year 2000 Project's primary goal from the start has been to prepare
our systems for business as usual on behalf of our shareholders into 2000 and
beyond. We remain confident we will meet that goal, and we look forward to
serving you in the years to come.
31
<PAGE> 34
THE VANGUARD FAMILY OF FUNDS
<TABLE>
<S> <C> <C>
STOCK FUNDS
- ----------------------------------------------------------------------------------------------------------------
500 Index Fund Growth Index Fund* Tax-Managed Capital
Aggressive Growth Fund Health Care Fund Appreciation Fund*
Capital Opportunity Fund Institutional Index Fund* Tax-Managed Growth and
Convertible Securities Fund International Growth Fund Income Fund*
Emerging Markets Stock International Value Fund Tax-Managed Small-Cap Fund*
Index Fund Mid-Cap Index Fund* Total International Stock
Energy Fund Morgan Growth Fund Index Fund
Equity Income Fund Pacific Stock Index Fund Total Stock Market Index Fund*
European Stock Index Fund PRIMECAP Fund U.S. Growth Fund
Explorer Fund REIT Index Fund Utilities Income Fund
Extended Market Index Fund* Selected Value Fund Value Index Fund*
Global Equity Fund Small-Cap Growth Index Fund* Windsor Fund
Gold and Precious Metals Fund Small-Cap Index Fund* Windsor II Fund
Growth and Income Fund Small-Cap Value Index Fund*
BALANCED FUNDS
- ----------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy Growth Fund STAR Fund
Balanced Index Fund LifeStrategy Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy Moderate Wellesley Income Fund
LifeStrategy Conservative Growth Fund Wellington Fund
Growth Fund
BOND FUNDS
- ----------------------------------------------------------------------------------------------------------------
Admiral Intermediate-Term Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Treasury Fund Intermediate-Term Tax-Exempt Fund Short-Term Federal Fund
Admiral Long-Term Treasury Fund Intermediate-Term Treasury Fund Short-Term Tax-Exempt Fund
Admiral Short-Term Treasury Fund Limited-Term Tax-Exempt Fund Short-Term Treasury Fund
GNMA Fund Long-Term Bond Index Fund State Tax-Exempt Bond Funds
High-Yield Corporate Fund Long-Term Corporate Fund (California, Florida,
High-Yield Tax-Exempt Fund Long-Term Tax-Exempt Fund Massachusetts, New Jersey,
Insured Long-Term Tax-Exempt Fund Long-Term Treasury Fund New York, Ohio, Pennsylvania)
Intermediate-Term Bond Preferred Stock Fund Total Bond Market Index Fund*
Index Fund Short-Term Bond Index Fund
MONEY MARKET FUNDS
- ----------------------------------------------------------------------------------------------------------------
Admiral Treasury Money State Tax-Exempt Money Market Tax-Exempt Money Market Fund
Market Fund Funds (California, New Jersey, Treasury Money Market Fund
Federal Money Market Fund New York, Ohio, Pennsylvania)
Prime Money Market Fund*
VARIABLE ANNUITY PLAN
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio High-Grade Bond Portfolio Money Market Portfolio
Diversified Value Portfolio High Yield Bond Portfolio REIT Index Portfolio
Equity Income Portfolio International Portfolio Short-Term Corporate Portfolio
Equity Index Portfolio Mid-Cap Index Portfolio Small Company Growth Portfolio
Growth Portfolio
</TABLE>
*Offers Institutional Shares.
32
<PAGE> 35
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & Johnson-Merck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 36
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q302-07/21/1999
(C) 1999 The Vanguard Group, Inc. All rights reserved.
Vanguard Marketing Corporation, Distributor.